Christian Walz of METEC Metal technology Inc. in Vankleek Hill says the tariffs have resulted in loss of business and higher prices for materials. (Photo: Louise Sproule).

Business

A look at the Trump tariffs in Prescott-Russell

By Francis Tessier-Burns

July 24, 2018

So far, there seems to be no end to the American and Canadian tit-for-tariff-tat.

In the latest turn of events, the U.S. has filed a formal challenge against the retaliatory tariffs launched by the federal government on Canada Day.

Those came a month after the U.S. introduced its 25 per cent tariff on steel and 10 per cent on aluminum. Already, Canadian companies have felt their effects.

The European Union and China have each introduced their own set of retaliatory tariffs; the auto industry is on the edge of its seat. Safe to say, the brash actions by the president south of the border—announced in a tweet no less—have upset trade across the world.

International headlines are hard to make sense of at the best of time, let alone when complex issues like trade are involved. So I set out to understand how the tariffs have affected local businesses here in Prescott-Russell.

Dynamo Playgrounds

With about 60 to 70 per cent of Dynamo Playgrounds’ sales in the U.S., CEO Richard Martin told me the tariffs created “a major panic in the markets right now.”

The fact metal products are shipped back and forth multiple times across the border is a big issue.

For example: A Canadian company which deals in raw steel has their product imported by the U.S. at a 25 per cent tariff. The price for a $100 piece of steel goes up to $125 to cover the tariff; if it’s imported back into Canada (either as a final product or to be forged further), there’s another 25 per cent on $125. The cost of that piece has jumped to $156.25 simply to cover the costs of the tariffs introduced by both countries. This is an oversimplification—one that leaves out exchange rates—but it shows how quickly prices can climb under the new regulations.

“How we deal with this is the big question,” says Martin. “Do we hit the panic button and increase our prices as well? … It starts knocking us out of the competition in the US markets.”

So far the Plantagenet-based playground builder has tried to maintain prices for clients in the hopes the extra costs are only temporary. To do so, the company bought about nearly 7,000 kg of aluminum materials while prices were still low, most of which is round 20-centimetre pipes used in popular playground models and can’t be repurposed.

“But we have to sell those models,” says Martin. “It could sit there for years.”

Looking long-term, Martin says Dynamo is exploring new international markets. But if Canada and the U.S. can’t get along on trade, then a price increase is inevitable.

I asked if he saw layoffs as a possibility. His answer was simple: “Absolutely.”

Dynamo hired an additional 12 employees in the past year, growing to 50 overall. Martin says the business could use another five to seven but with the tariffs threw a wrench in those plans.

To help sail through the uncertainty, the Canadian government announced it would also offer $2 billion in aid to metal and manufacturing sectors.

“I hate to ask for the handout because I’d rather do it on my own,” says Martin, “but at some point, if it becomes a war because of federal problems, what can I do?”

Duval Steel

Five minutes away on Highway 17, Duval Steel has dealt with the tariffs a little differently.

About 90 per cent of Duval Steel’s production is propane cages and 60 to 70 per cent of its clients are in Québec.

A few months ago, the company warned its clients that its prices would increase by 20 per cent across the board. Owner Jacques Duval foresees another increase in the next few months, again due to materials cost.

Clients responded similarly to Dynamo and ordered large quantities of stock, but since then, Duval says sales have dropped.

Jacques Duval, owner of Duval Steel, says the loss of jobs is the worst part of the ongoing trade war. (Photo: Francis Tessier-Burns.)

To him, the loss of jobs is most worrisome—but they won’t be at his company. Since automating much of the production process a few years ago, Duval Steel only has three employees including Jacques and his wife Nathalie. He doesn’t anticipate any layoffs.

Duval was critical of the federal promise of aid, saying small and medium-sized business were rarely ever eligible for such programs.

“It’s disappointing but it’s always that way,” he says.

He added a word of caution for those wholeheartedly supporting the $2-billion dollar program.

“We can’t forget what we’re giving is coming from our pockets,” he says. “Are we ready for a bail out?”

Dart Aerospace

While steel got the biggest price bump, aluminum was also tariffed at 10 per cent. That’s the main material for Dart Aerospace in Hawkesbury.

“Where we expect a bigger impact is when we source aluminum-based products from our U.S. suppliers,” Alain Madore wrote in an email. “We expect them to try and pass the bill to their customers.”

Madore, the president and CEO, mentions if that’s the case then Dart would likely start looking at different sources outside of the U.S. for its materials.

This leads to a criticism of the Trump tariffs: in trying to protect American jobs, the price hike may backfire and further hurt American workers.

METEC Metal Technology

During a recent United Counties of Prescott and Russell council meeting, Champlain Mayor Gary Barton said government needed to show support for local companies in the industry. He mentioned Ivaco Rolling Mills in L’Orignal as one of the biggest manufacturers in the region. The Review contacted Ivaco but the company refused to offer comments on the tariffs.

METEC is another metal company within Champlain’s borders and company owner Christian Walz sees the tariffs as only one part of the overall trade problem.

For one, many of the materials METEC needs is coming from Europe. As mentioned earlier, the EU has also introduced tariffs, therefore bringing up the price even if materials aren’t coming from the U.S. Other international companies have also turned towards Canadian markets creating a tighter space for local manufacturers and suppliers.

Walz is also unconvinced government will ever actually remove the tariffs despite saying they’re only temporary.

“That is the most worrisome of all for our business,” he says.

About 80 per cent of METEC’s regular clients are in the U.S. and half of its custom work ends up south of the border as well. That, coupled with some large clients skipping METEC and looking to do business directly in the U.S., has led Walz to a drastic solution: possibly moving to the U.S.

“If this keeps on going, and there are other factors of course, we can move our manufacturing within two weeks down to the States. No problem,” he says. “We’re prepared for that.”

I asked if he really thinks it’d ever come to that and he said that’s it’s already come close a couple of times over the years.

So what’s the solution? Walz says we’ve had it before: free trade.

As a quick reminder, Canada, the U.S. and Mexico have been hashing out the North American Free Trade Agreement for months—the polar opposite of trade tariffs.

“We’re spending billions of dollars on discussing free trade and now we’re spending billions of dollars with having tariffs,” says Walz. “One works against the other and we’re getting nowhere.”